Bob was made redundant 12 months ago. Although he found a new job six months later, he missed one mortgage payment during the time he was unemployed and incurred a CCJ of £2,000 on a personal loan. Now Bob needs to buy a flat closer to work, but he can only raise a 5% deposit. His existing lender has already refused him a mortgage due to his adverse credit history so he needs to explore other options.
Kevin Morgan, managing director of EZI UK, says that Platform has a product at 95% that allows clients a single missed repayment and CCJs totalling £3,000 Many lenders will accept a client with the missed mortgage payment but the CCJ at £2,000 will inevitably push the case into the sub-prime market. Next we have his employment history with just six months in his current position following a similar period of unemployment. Due to this the lender must also permit a limited period of employment in current position. Lastly Bob can only raise a 5% deposit and this will also restrict the lender options available. Whilst the sub-prime market continues to expand and diversify, 95% lending remains scarce. However, there is a lender who can match Bob's profile.
For light adverse cases such as this, Platform appears to fit the bill. It has had a product at 95% for a couple of years and it allows clients a single missed mortgage repayment and CCJs totalling £3,000.
Furthermore it only requires the client to have been in his current position for six months.
However, the product is only available on a full status basis and we do not know what the client earns. Platform uses a 3.5 x income multiple and 100% of bonuses, overtime and commissions can be included.
The rate is LIBOR plus 3.75% making a current total of 7.50%. This is fairly high – at 2% over Halifax mortgage base – and there is low level of adversity but the 95% LTV is the overriding factor in its pricing. There are three discount options to choose from to reduce costs for between one and two years.
The drawbacks, which Bob needs to consider before committing, are the three to four-year early redemption penalty period (dependent on product) and an arrangement fee and higher percentage advance fee being added to the loan. These will mean that the client will have to remain with the lender for the next three to four years. As he is not long into a new position, is Bob satisfied about the security of the job and his options for alternate employment? If not, is he is looking to relocate? With the high LTV, fees added and redemption penalties he will be in a negative equity situation for at least the first couple of years.
Paul Hunt, marketing manager at Platform, says it's a good time for Bob to take a mortgage with the firm as it offers one of the widest choices of discounts in the non-conforming sector A life-changing event such as redundancy can be the root cause of credit problems such as CCJs, arrears, defaults, bankruptcies and repossessions. Other common factors we see are divorce or separation, long-term illness or the death of an income earner.
It is important for a mortgage intermediary to discover the cause of the problem and to ensure the situation is resolved rather than just look at the effect. This will not only help the lender make a decision based on individual circumstances but will, more importantly, also ensure that the borrower has the ability to repay the loan.
Looking at Bob's case, we are one of the few nonconforming lenders who lend up to 95% LTV. The application would be on a full status basis and we would allow up to £3,000 of CCJs and up to one month's arrears in the past 12 months. We would also accept anyone who has been a discharged bankrupt for over a year or someone whose IVA has completed.
The maximum loan Bob could borrow at 95% is £250,000 and this would be subject to applying an income multiple. We do stipulate that there must have been no CCJs, arrears or new IVA arrangements registered in the three months prior to application although we do ignore all defaults. As Bob has been in employment for three months he satisfies our minimum employment criterion and we will apply an income multiple of 3.5 plus, taking into account 100% of any bonus, commission or overtime.
All of our products are based on a percentage above LIBOR which is currently 3.75%, and our 95% scheme works on a margin of 3.75% above this rate.
Fortunately for Bob there has never been a better time to take a mortgage with us, as we currently have one of the widest choices of discounts available in the non-conforming market.
Our 18-month discount is 1.75% and our one and two-year discounts are 1.50%. If Bob takes the 1.75% discount, his initial rate would be 5.75% and if he opts for either of the 1.5% discounts his initial rate would be 6%.
Since many of our customers have, like Bob, experienced a one-off event in their lives which caused their credit problem, we know that many will conduct their mortgage satisfactorily while they are with us, allowing them to remortgage to a high street lender after a certain period of time.
With this in mind, the early repayment charges on our discounts are either for three years (one-year discount) or four years (18 month and two-year discounts) and reduce over the repayment charge period.
Many customers remortgage to a high street lender within three years whether they are still within the repayment charge period or not, providing excellent opportunities for mortgage intermediaries to revisit their clients.